Marshall & Ilsley Reveals $282M Exposure to Troubled Lender

Milwaukee-based bank Marshall & Ilsley (MI) said Monday it has a $282 million exposure to troubled residential mortgage lender Franklin Credit Management Corp. (FCMC), sending its shares down 2%. Last week Franklin announced it would delay its Q3 earnings report until after it reviewed and assessed the reserves for its portfolio of acquired loans, especially second-lien mortgages, due to the rapidly deteriorating real estate and mortgage origination credit market and resulting industry-wide increase in delinquencies involving mortgages originated in the years 2005 and 2006. Franklin shares fell from $2.50 to about $0.50 on the news. Marshall & Ilsley said Monday it did not expect any potential losses on the mortgages to be material to the $8B company's financial results (press release), a view that was later endorsed by Standard & Poors: "We expect the loss content to be low," it told investors. "The loans are backed by pools of first- and second-lien mortgages, the majority of which were either originated prior to 2005 or continue to perform within original projections. Even if the loss content was higher than we expect, such losses could be absorbed by the gains from M&I's divestiture of Metavante." It ended its note saying, "The outlook on the company remains negative, reflecting our concerns about capital management and financial policies post-Metavante."

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